Argentina is now considered to be a hyperinflationary economy. IAS 29 – Financial Reporting in Hyperinflationary Economies is therefore applicable to entities whose functional currency is the Argentine peso.
Assessment of the situation
IAS 29 sets out a number of quantitative and qualitative characteristics for the purpose of assessing whether an economy is hyperinflationary (IAS 29 3), including:
- the general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency (e.g., the US dollar or the euro);
- transactions are conducted in terms of a relatively stable foreign currency;
- sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period;
- interest rates, wages and prices are linked to a price index; and
- the cumulative inflation rate over three years is approaching, or exceeds, 100%.
Inflation in Argentina has been very high for several years according to consensus observations, even though local inflation data has not been reported consistently by the public authorities. After declining for several months in 2017, inflation has increased significantly since early 2018 and the three-year cumulative inflation rate now exceeds 100%. Forecasts suggest that three-year cumulative retail price inflation at the end of 2018 will be around 120%, and 100% for the wholesale price index. In 2019, the inflation rate is not expected to fall significantly, especially in view of the devaluation of the Argentine peso.
In view of the three-year inflation rate exceeding 100% and several other qualitative indicators also pointing in the same direction, Argentina is now considered to be a hyperinflationary economy.
Starting point of using IAS 29
Unlike other IFRSs, which allow entities to exercise judgement based on the facts and circumstances, IAS 29 leaves no room for deviations and all entities are therefore expected to apply the standard from the same date (IAS 29 4).
As assessed above, Argentina is considered to be hyperinflationary from 1 July 2018.
IAS 29 states that the standard should apply from the beginning of the reporting period in which the country in question is considered to have become hyperinflationary (IAS 29.4). Therefore, IAS 29 should be applied by all entities with financial periods ending 31 December 2018 (i.e., with effect from 1 January 2018) as if the Argentine economy had always been hyperinflationary.
IAS 29 is applicable to entities whose functional currency is the Argentine peso. Accordingly, entities located in Argentina with a functional currency other than the Argentine peso (US dollar, Brazilian real, euro, etc.) are not required to apply IAS 29.
Restatement to correct the loss of purchasing power of the Argentine peso
IAS 29 requires financial statements, whether based on a historical cost approach to be restated. This consists in applying a general price index such that the financial statements are presented in terms of the measuring unit current at the closing date. All non-monetary assets and liabilities must be restated for inflation to reflect their “real value” at the closing date. In addition, the statement of comprehensive income (income statement items together with other comprehensive income) are restated for inflation observed during the period. Monetary items do not require restatement, as they already reflect the purchasing power at the closing date.
An entity might prepare current cost financial statements. Items stated at current cost are not restated, because they are already stated in terms of the measuring unit current at the end of the reporting period. Other items in the balance sheet are restated in the same way as for historical financial statements. All items in the statement of comprehensive income also need to be restated by applying a general price index.
Adjustments to non-monetary assets and liabilities and income and expenses must be presented separately on a specific line of the statement of income in accordance with the requirement of IAS 29 that “the gain or loss on the net monetary position shall be included in profit or loss and separately disclosed” (IAS 29 9).
Examples of monetary assets and liabilities:
Examples of non-monetary assets and liabilities:
Example of restatements for an asset acquired in 2016 for the preparation of annual financial statements in accordance with IAS 29
- The asset was acquired on 1 January 2016 for 1 million pesos.
- The asset is depreciated on a straight-line basis over a period of 10 years.
- The rate of inflation observed between 1 January 2016 and 31 December 2018 is equal to 100%.
Cost (in pesos)
Restated value (in pesos)
Gross value = 1,000,000
Depreciation = 300,000
Net value = 700,000
Gross value = 1,000,000 x 2 = 2,000,000
Depreciation = 2,000,000 x 3/10 = 600,000
Net value = 1,400,000
The entity discloses the following accounting entries:
Gross value of asset IAS 29 Hyperinflation in Argentina
Depreciation expenses IAS 29 Hyperinflation in Argentina
Accumulated depreciation IAS 29 Hyperinflation in Argentina
Reserves or other comprehensive income1
Profit on net monetary position2
Reserves or other comprehensive income 470,000
Comparative amounts for financial statements presented in a stable currency in 2017 are not restated for inflation (see below). This therefore generates a difference between equity at 31 December 2017 (not restated) and opening equity at 1 January 2018 (restated for IAS 29) because the rate at which the hyperinflationary currency depreciates against a stable currency is rarely equal to the rate of inflation.
Groups must choose between presenting the impact of IAS 29 on opening equity at 1 January 2018 either directly in equity (reserves) or in other comprehensive income (OCI) as a translation adjustment.
Recognition directly in equity (reserves) is consistent with a change in accounting policy in accordance with IAS 8. Recognition in other comprehensive income is consistent with IAS 1.109, which states that changes recognised directly in equity comprise only transactions with owners in their capacity as such.
Other accounting issues IAS 29 Hyperinflation in Argentina
The first application of IAS 29 may have other impacts, in particular:
- An update of inventory and non-current asset impairment tests (property, plant and equipment and intangible assets including goodwill) even if no impairment was recorded in the historical cost convention financial statements.
- A reassessment of deferred taxes assets and liabilities due to the increase in temporary differences.
The impacts will be accounted for in equity as of 1 January 2018, as long as they relate to prior years (see above).
Retroactive restatement of comparative periods? IAS 29 Hyperinflation in Argentina
For groups presenting financial statements in a stable currency (e.g., in euros, dollars or yens just to name a few), paragraphs 42(b) and 43 of IAS 21 – The Effects of Changes in Foreign Exchange Rates apply, which state that comparative amounts presented in prior financial periods in a stable currency are not restated.
French groups with subsidiaries in Argentina that present financial statements in euros are not therefore required to restate comparative revenue data published for 2017 or 2016.
General price index IAS 29 Hyperinflation in Argentina
IAS 29 states that all entities that report in the currency of the same economy should use the same general price index to measure the change in inflation. However, given the lack of reliable locally-published data for certain periods, determining the general price index is a sensitive matter.
The local accounting standard setter in Argentina should provide the table of indices to be used by entities with the functional currency of the Argentine pesos for the application of IAS 29. These indices would be largely based on the Wholesale Price Index for periods up to 31 December 2016 and the Retail Price Index thereafter.
Example (from Unilever Annual Report and Accounts 2018):
And the relevant part from Note 1: